Correlation Between SPDR Portfolio and Morningstar Unconstrained

Can any of the company-specific risk be diversified away by investing in both SPDR Portfolio and Morningstar Unconstrained at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining SPDR Portfolio and Morningstar Unconstrained into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPDR Portfolio Aggregate and Morningstar Unconstrained Allocation, you can compare the effects of market volatilities on SPDR Portfolio and Morningstar Unconstrained and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in SPDR Portfolio with a short position of Morningstar Unconstrained. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and Morningstar Unconstrained.

Diversification Opportunities for SPDR Portfolio and Morningstar Unconstrained

0.67

Correlation Coefficient

SPDR Portfolio  Morningstar Unconstrained

Poor diversification

The 3 months correlation between SPDR and Morningstar is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Aggregate and Morningstar Unconstrained Allo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Unconstrained and SPDR Portfolio is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on SPDR Portfolio Aggregate are associated (or correlated) with Morningstar Unconstrained. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Unconstrained has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Morningstar Unconstrained go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Morningstar Unconstrained

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 2.72 times less return on investment than Morningstar Unconstrained. But when comparing it to its historical volatility, SPDR Portfolio Aggregate is 1.94 times less risky than Morningstar Unconstrained. It trades about 0.04 of its potential returns per unit of risk. Morningstar Unconstrained Allocation is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  887.00  in Morningstar Unconstrained Allocation on December 3, 2024 and sell it today you would earn a total of  202.00  from holding Morningstar Unconstrained Allocation or generate 22.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

SPDR Portfolio Aggregate  vs.  Morningstar Unconstrained Allo

SPDR Portfolio Aggregate

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio Aggregate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SPDR Portfolio is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Morningstar Unconstrained

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morningstar Unconstrained Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with SPDR Portfolio and Morningstar Unconstrained

The main advantage of trading using opposite SPDR Portfolio and Morningstar Unconstrained positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Portfolio position performs unexpectedly, Morningstar Unconstrained can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Morningstar Unconstrained will offset losses from the drop in Morningstar Unconstrained's long position.

The idea behind SPDR Portfolio Aggregate and Morningstar Unconstrained Allocation pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.